UM/UIM COVERAGE

It’s not always there when you expect it

In August, a U.S. court … ruled that a UM/UIM claimant must

file suit and determine that it is legally entitled to compensation

before being able to collect UM/UIM benefits.

By Joseph S. Harrington, CPCU

Your client had never heard of the coverage, but you convinced him or her that it provided important protection. Then a claim was denied on narrow grounds. Ouch.

No diligent producer would fail to notify a personal auto customer of the need for uninsured/underinsured motorists (UM/UIM) coverage—the first-party coverage added to auto policies to compensate insureds for damage or injury caused by unidentified (“hit-and-run”) drivers or by motorists who have no insurance or insufficient insurance to compensate for a loss.

UM/UIM coverage is not provided automatically, and consumers might not know to ask for it. Therefore, most states require agents and brokers to establish a written record that the coverage was offered to applicants and policyholders.

Given what’s at stake—the potential for costly and uncompensated damage or injury—producers may be dismayed to learn just how narrowly UM/UIM coverage can be applied, and how easy it can be for carriers to deny coverage, as indicated in a series of recent court cases.

Tight grounds

In April 2022, an appeals court in West Virginia upheld an insurer’s denial of UM/UIM coverage for injuries sustained by passengers in a rental car.[1]

Coverage was denied on the basis that the policy’s UM/UIM applied only to accidents involving vehicles listed on the policy, plus purchased vehicles and vehicles that permanently replace listed vehicles. The policy in question did not extend UM/UIM coverage to rental cars, and the appeals court panel rejected claims that state law required it to do so.

A judge in that case conceded that the ruling “may seem inequitable—or some may say fundamentally unfair,” but emphasized that the court could rule only on the constitutionality of statutes, not their merits.

The following month, an Illinois appeals court found that a denial of liability by an allegedly at-fault driver was not equivalent to a denial of coverage by the defendant’s insurer. Hence, no UM/UIM coverage could be claimed, at least at that time.[2]

In August, a U.S. court in Alabama ruled that a UM/UIM claimant must file suit and determine that it is legally entitled to compensation before being able to collect UM/UIM benefits.[3]

In that case, an injured bicyclist claimed its insurer failed to undertake a good faith investigation of the accident and refused to consent to a proposed settlement, thus forcing him to litigate the matter. The insurer prevailed, the court finding that the carrier neither breached its contract nor acted in bad faith.

That ruling upheld the letter of the policy provisions and related law, but insurance producers and buyers will find it unsettling for a few reasons:

• The bicyclist’s injuries were severe, requiring four brain surgeries and producing permanent impairments of function;
• In light of those injuries, the UM/UIM limit at stake, $150,000, was not great and was promptly paid following a ruling against the driver; and
• The court opined that the insurer’s claim investigation was “sloppy,” relying principally on a police report based on information from the accused driver while failing to interview other available witnesses.

Later that month, a Kentucky court ruled that UM/UIM coverage was not available to an insured who was unable to collect from the at-fault driver because the insured had failed to file suit in time; the suit was therefore dismissed with no finding of liability.[4]

Bitter logic

Each of these claim denials is supported by logic that a reasonable person could discern, if not accept. Regarding the Kentucky case, for example, no one would expect a carrier to compensate a UM/UIM claimant simply because he or she failed to file a timely claim against the at-fault party.

In the other cases, however, policyholders learned one of two things:

• Their UM/UIM coverage did not extend as far as they thought it would; or
• They had to assume the burden of initiating legal action to collect on the coverage.

Either of those outcomes can be a bitter pill to swallow, especially when the insured has been advised to believe that, by purchasing UM/UIM coverage, it has acquired important protection.

[1] Progressive Max Insurance Company v. Brehm and Hess

[2] Great Western Cas. Co. v. Brambila

[3] Voss v. State Farm Mut. Auto. Ins. Co.

[4] Shackelton v. State Farm Mut. Ins. Co.

The author

Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.